AFE3782 NOTES

IFRS 5 NON-CURRENT ASSETS HELD FOR SALE

PURPOSE OF IFRS 5 -The purpose of IFRS 5 is to give guidance on the

accounting treatment and presentation of assets held for sale and discontinued
operation.

Objective of IFRS 5

To specify accounting treatment to set the presentation and

disclosure of discontinued operations
For assets held for sale

Non-current assets held for sale

Non-current assets held for sale - A non-current asset held for sale is one
where the carrying amount will be recovered principally through sale rather
than through continuing use.
A disposal group is a group of assets (both Non-Current and Current) to be
disposed of by sale or otherwise, together as a group in a single transaction.
Liabilities associated with those assets will also be included in the transaction.
The most important aspects when discussing non-current assets held for sale
are:
 Classification
 Measurement
  Presentation and
 disclosure
Classification criteria as held for sale
To be classified as ‘held for sale’ it must be:
 Available for immediate sale in its present condition and,
 Its sale must be highly probable

For a sale to be highly probable:

 Management must be committed to a plan to sell the asset
 An active program to locate a buyer and complete the plan must have
been started
 The asset must be being actively marketed at a price that is reasonable
in relation to its current fair value
 The sale should be expected to take place within twelve months from the
date of classification as ‘held for sale ‘
 It should be unlikely that significant changes to the plan will be made or
that the plan will be withdrawn.
N/B Assets /operations expected to be abandoned do not qualify as
held for sale.
N/B depreciation is not calculated on assets classified as held for sale.

The term Non-current assets held for sale actually refers to:

Individual NCA: Disposal groups:

-held for sale (NCAHFS) Held for sale (DGHFS)
-Held for distribution(NCAHFD) Held for distributions (DGHFD)

Measurement of held for sale assets

Assets within measurement scope
  Immediately before classification:
Measure asset in terms of relevant standard and recognize impairment of
assets using relevant standard, recognize impairment in profit/loss or
OCI whichever is applicable.
 Immediately after classification:
Measure the asset at the lower of the carrying amount and Fair value
less costs to sale (FVLCTS):
RECOGNISE impairment loss in profit or loss
 AT REPORTING DATE:
Measure asset at lower of carrying amount and FVLCTS:
RECOGNISE impairment loss in profit/loss,
RECOGNISE reversal of impairment loss in profit/loss (limited to prior
impairment losses)
Assets outside measurement scope of IFRS5
 immediately before classification – measure asset in terms of
relevant standard.
 At reporting date – measure asset in terms of relevant standard.
Assets excluded
-Deferred tax (IAS 12)
-Assets from employee benefits (IAS 19)
-Financial assets (IFRS 9)
-Investment property @ FV model (IAS 40)
-NCA @Fair value less costs to sell (IAS 41)
-Contractual rights-insurance contracts (IFRS 4)
Measurement of disposal groups within measurement scope
Immediately before classification:
Measure all assets and liabilities in terms of relevant standards.
Immediately after classification:
Measure disposal group at lower of CA and FVLCTS
RECOGNISE, impairment loss in profit/loss, allocate:

 First to goodwill
 Then pro-rata to other NCA within measurement scope.
at reporting date:
measure disposal group at lower of CA and FVLCTS (first measure all assets
and liabilities outside measurement scope in terms of their relevant standards);
RECOGNISE impairment loss in profit/loss, allocate:
 First to goodwill
 Then pro-rata to other NCA within measurement scope and recognize
reversal of impairment loss in P/L (limited to prior impairment losses)
and allocate pro-rata to other NCA within measurement scope

Example 1 cost model

York bought an asset at a cost of N$120,000 on 1 January 20X1 and
depreciated it straight line over 10 years. The asset’s residual value is nil and
depreciation is charged pro-rate on a monthly basis. On 30 November 20X4,
York classified the asset as a non-current asset held for sale in accordance
with the rules of IFRS 5 Discontinued operations and non-current assets held
for sale. At that date the fair value of the asset was N$70,000 and the costs to
sell were N$2,000. The asset had not been sold by the 31 December 20X4
reporting date. Prepare extracts from the financial statements for the year-
ended 31 December 20X4.
SOLUTION EXAMPLE 1

SFP (extract) SPL(extract)

$ $
Current assets NCA-HFS (W) 68,000 Depreciation (W) 11,000
Impairment (W) 5,000
Workings Annual depreciation = $120,000 / 10 years = $12,000 p.a.
Carrying value (30 November 20X4) = 120,000 – (12,000 x 3 years) – (12,000 x 11/12)
= $73,000
Fair value less costs to sell = 70,000 – 2,000 = $68,000
NCA-HFS (lower) = $68,000
Impairment = 73,000 – 68,000 = $5,000

Example 2 revaluation model

An item of plant measured under IAS 16 ‘S revaluation model, met all the criteria for
classification as held for sale on 1 January 2019. The following information is
relevant:

 Cost : N$100 000 (purchased 1Jnauary 2016)

 Depreciation : 10 % p.a. straight line to nil residual values
 Fair value: N$120 000 (revalued 1 January 2018)
 Revaluations are performed using the net replacement value method
 The revaluation surplus is transferred to retained earnings over the life of the
asset
 The value in use has always been greater than the plant’s carrying amount and
therefore the asset has not previously been impaired( costs to sell equal costs to
disposal)
Required; journalise the reclassification of plant (PPE) TO HFS assuming that on 1
January 2019 :
a) Fair value is N$100 000, the expected selling costs are N$9 000 and value in
use is N$105 000.
b) Fair value is N$150 000, expected selling costs are N$20 000and the value in
use is N$155 000.
c) Fair value is N$60 000, the expected selling costs are N$20 000 and the value
in use is N$65 000.

Solution example 2
Workings
W1.1 Measurement of plant before classification as NCAHFS
Revaluation model in terms of IAS 16

detail calculation A B C
PPE;CA 100 000-(100 000*.1*2YRS)
1/01/18 80 000 80 000 80 000
PPE; Reva
surplus Balancing: FV 120 000-CA80 40 000 40 000 40 000
1/01/18 000
PPE: GIVEN 120 000 120 000 120 000
FV1/01/18
PPE:
accumulated 120 000/8 (remaining years) (15 000) (15 000) (15 000)
depreciation
PPE:CA1/01/19 Balancing (120 000-15 0000 105 000 105 000 105 000
PPE:incr /decr Balancing (based on FV in
required) (5 000) 45 000 (45 000)
Adjust rev A&C decrease ,limit to RS (5 000) - (5 000)
surplus balance
Adjust rev A: nil since devaluation does not (0) N/A (10 000
expense exceed RS bal
B: N/A since it us an increase in
FV
C: deval: 45 000 exceeds RS bal
PPE: GIVEN 100 000 150 000 60 000
FV:01/01/19

W1.2 CHECKING FOR IMPAIRMENTS IN TERMS OF IAS 16 &IAS 36

A B C
PPE: BEFORE IMPAIRMENT GIVEN 100 000 150 000 60 000
FV:01/01/14
PPE: Recoverable
amt:01/01/14 Greater of VIU and FV-Costs of 105 000 155 000 65 000
Disposal
PPE; impairment
loss expense RA ids greater than CA N/A N/A N/A
THEREFORE:
PPE:FV:01/01/19 GIVEN 100 000 150 000 60 000
Less IAS 36
impairment loss above 0 0 0
expense
PPE; None were impaired 100 000 150 000 60 000
CA:01/01/14

W2: measurement of plant after classification as NCAHFSLOWER OF PPE’s CA &

FVLCTS

A B C
NCAHFS:CA:01/01/1 Transfer from
9 PPE(W1.1)given 100 000 150 000 60 000
NCAHFS:Imp of CA-FVLCTS 9 000 20 000 20 000
plant1/1/19
NCAHFS: IFRS (91 000) (130 000) (40 000)
5 :1/1/19

W3 BALANCE ON REVALUATION SURPLUS

A B C
Revaluation surplus Opening balance - - -
1/1/18
Increase to FV 120 000-CA80 000 40 000 40 000 40 000
 FV01/01/18
Transfer to 40000/8 years remaining (5 000) (5 000) (5 000)
RE(31/12/18)
Rev surplus 01/01/19 Before transfer 35 000 35 000 35 000
Inc/dcr in
FV01/01/19 W1 (5 000) 45 000 (35 000)
Revaluation surplus After transfer 30 000 80 000 0
01/01/19

Journals 01/01/14

A B C
Dr/(Cr) Dr/(Cr) Dr/(Cr)
PPE;Plant;ACC DEPN 15 000 15 000 15 000
PPE;Plant:cost (15 000) (15 000) (15 000)
NRVM: Acc depreciation set off against cost
PPE: Pplant :cost (5000) 45 000 (45 000)
Revaluation surplus-plant (OCI) 5000 (45 000) 10 000
Revaluation of expense 0 0 10 000
Revaluation of plant (PPE)to FV immediately before
reclassification to NCAHFS
NCAHFS :Plant:cost-AD 100 000 150 000 60 000
PPE:plant:cost (100 000) (150 000) (60 000)
Transfer from PPE on date classified as NCAHFS
(transfer at the CA after any depreciation, revaluation
and impairment to date of classification)
Impairment loss-NCAHFS 9 000 20 000 20 000
NCAHFS:Acc imp loss (9 000) (20 000) (20 000)
Measurement of plant as a NCAHFS on date of
classification to lower of CA as PPE on date of
classification and FV-CtS

Explanatory notes:
1 revaluation surplus balance (w3) is calculated immediately prior to the PPE’s final
revaluation to fair value on 1/1/19, since any dropping its value must first be set off
against this balance and any further decrease in the value of the PPE is then expensed
as a revaluation expense.
2. as the net replacement value method was used the accumulated depreciation
immediately before the revaluation must be set off against the cost of the asset before
revaluing the asset on 1/1/19
3. despite the fact that a balance remains in the revaluation surplus after the
revaluation on 1/1/19 the impairment loss relating to NCAHFS is expensed (i.e.
impairment in terms of IFRS5 are always expensed). The balance in the revaluation
surplus on the date of classification as a NCAHFS remains there until assets is
disposed off at which point it will be transferred to retained earnings.
4. while the plant is PPE the entity would transfer the revaluation surplus tp retained
earnings over the useful life of the asset (i.e. at the same rate as the asset is
depreciated) but since the asset is now a NCAHFS (from 1/1/19 ) both depreciation
and this transfer must cease.,

QUESTIONS WITHOUT ANSWERS NCAHFS

Example 1
At 1 January 2011 Namko Ltd carried a property in its statement of financial
position at its revalued amount of $14m in accordance with IAS 16 PPE.
Depreciation is charged at N$300 000 per year on a straight-line basis. In April
2015, the management decided to sell the property and it was advertised for
sale. By 30 April the sale was considered to be highly probable and the criteria
for IFRS 5 NCA HFS&DO were met at this date. At that date the asset’s fair
value was N$15,4m. The costs to sell the asset were estimated at N$300 000.
On 31 Jan 2016 the property was sold for N$15,6m. The transactions
regarding the property are deemed to be material and no entries have been
made in the financial statements regarding this property since 31 Dec 2014
Required:
Explain how the above transaction should be dealt with in the financial
statements of Namco Ltd for the year ended 31 Dec 2015.

Example 2
Cathy Ltd has a plant with a cost of N$200 000 and a carrying amount of
N$160 000 on 1 January 2019 (beginning of reporting year). Plant is
depreciated at 10% per annum on the straight-line basis.
On 30 June 2019 management decides to dispose of the plant within the next
year. All other criteria to facilitate the classification of the asset as a non-
current asset held for sale are met. The plant’s fair value less cost to sell
amounts N$135 000 on 30 June 2019.
Required:
Journalise the above transactions.

Example 3: disposal group

 D Ltd (year-end 31 December 2014) decides on 30 September 2014 to
dispose of a disposal group within the next year. All the requirements for
classification as held for sale, have been met and consequently the disposal
group can be classified as held for sale. The carrying amounts of the items
included in the disposal group are the following:
N$
Land (1 Jan 2014) (carrying amount) 100 000
Buildings (1 Jan 2014) carrying amount 500 000
(Cost -$535 715; accumulated depreciation-35 715)
Plant (1 January 2014-Acquisition date): cost 210 000
Inventories: carrying amount 60 000(30/09/14),
with a net realizable value of 50 000
creditors associated with plant, inventories and factory building 30 000
30/09/14
Share Investments :( assume FV adjustment through P/L on
1 January 2014 FV $100 000) ON 30/09/14 80 000
The fair value of the disposal group on 30.09.14 date of initial classification as
held for sale, amounted to $880 000, while costs associated with the disposal
groups amounted to:
Commission on sale of all items in group $40 000
Capital gains tax ( CGT) $10 000

Required:
Journalise the above transactions in accordance with IFRS 5
Changes to a plan of sale
When the criteria for classification as a HFS is no longer met the entity ceases
to classify as HFS. The assets shall be measured at the lower of:
 The carrying amount before asset (or disposal group) was classified as
held for sale, adjusted for any depreciation, armotisation or revaluations
that would have been recognized had the asset (or disposal group) not
been classified as held for sale and
  The recoverable amount on the date of the subsequent decision not to
sell.

DISCONTINUED OPERATIONS (DO)

It is a component of an entity (a part of an entity that can be distinguished
from the rest i.e. a cash generating unit) that has been disposed of, or has been
classified as held for sale and:

 Represents a separate major line of business or geographical area of

operations
 It is a part of a single coordinated plan to dispose of a separate major line
of business or geographical area of operations or,
 It is a subsidiary acquired exclusively with a view to resale.
*IFRS 5 prescribes certain additional presentation and disclosure requirements
for DOs
Identification of a DO (IFRS5.31-36)
The definition of a DO explains that before an operation can be classified as a
DO it must meet the definition of a component (i.e. being a CGU or group of
CGUs) (while it is in use). It should be a component that represent a separate
major line of business or geographical area of operations that has been
disposed of or been classified as an HFS.
For example, an entity may wish to dispose of all its operations (component)
within Windhoek (a geographical area) this would be classified as a DO.
A disposal group which meets the definition of a HFS but is only part of a
cash generating unit would not meet the definition of a component and thus
would not meet the definition of a DO

Measurement
A DO is in effect a disposal group (or multiple disposal groups) that is held for
sale (or has been already disposed) and also meets the definition of a
component of the entity and also meets the definition of a discontinued
operation (IFRS5.31). Measurement of a DO is thereby a prescribed under held
for sale.
Disclosure of a DO
Statement of comprehensive income:
Face
Total profit or loss from discontinued operations (show in profit or loss section)
Notes or on the face:
Analysis of total profit /loss for the period :
 Profit/loss
 Tax effects of P/L
 Gain or loss on re-measurement
 Gain or loss on disposals
 Tax effects of gains /loss
 Changes in estimates
Statement of cash flows: (face or notes)
 Operating activities
 Investing activities
 Financing activities
Other notes
Components no longer held for sale
Criteria met after the end of the reporting period.

Example D.O
Angola’s car manufacturing operation has been making substantial losses.
Following a meeting of the board of directors, it was decided to close down the
car manufacturing operation on 31 March 20X6. The company’s reporting date
is 31 December and the car manufacturing operation is treated as a separate
operating segment. Explain how the decision to close the car manufacturing
operation should be treated in Angola’s financial statements for the years
ending 31 December 20X5 and 20X6
Solution
31 December 2015
The operation is not being sold so cannot be classified as held for sale and
neither is it a discontinued operation as it is still operating until 31 March
2016. Angola is firmly committed to the closure but it hasn’t taken place and
so is included in continuing operations. A disclosure in the notes can be made
of the intention to close the operation in the following year.
31 December 2016 The operation is now classified as a discontinued operation
as it has now ceased operating.

Example 2 DO
Max Co Statement of profit or loss and other comprehensive income for
year ended 31/12/17
N$ N$
17 16
000 000
revenue 700 550
Cost of sales (300) (260)
Gross profit 400 290
Distribution costs (100) (70)
Administration costs (70) (60)
Profit from operations 230 160

During the year the entity ran down a material business operation with all
activities ceasing on 30 /03/17.
The results of the operation for 2017band 2016b were as follows:
N$ N$
17 16
000 000
revenue 60 70
COS (40) (45)
Distribution exp (13) (14)
Administration exp (10) (12)
Loss from operations (3) (1)

The entity made gains of $7000 on the disposal of NC of the DO. These have
been netted off against administrative expenses.
Required:
Prepare the Statement of Profit /Loss and other Comprehensive income for the
year ended 31 December 2017 for Max co, complying with the provisions of
IFRS 5, disclosing the information on the face of the SPL (ignore taxation).
solution
N$ N$
17 16
REVENUE 640 480
Cost of sales (260) (215)
Gross profit 380 265
Admin expenses (60) (48)
Distribution exp (87) (56)
Profit from continuing operation 233 161
Income tax expense - -
Discontinued operations (3) (1)
Income tax expense (-) (-)
Profit for the year 230 160







 u
car manufactu
making substan
meeting of the
decided to
manufacturing o
The company’s
December and
operation is trea
segment. Explain
the car manufac
treated in Angol
the years endin
20X6